How talent from top tech services companies is changing the game for laggards

That team, under chief executive officer (CEO) Sandeep Kalra, who had joined Persistent in May 2019, put the technology services and solutions company on the path to rapid growth, increasing revenue from $501 million in 2020 to $1.18 billion in FY24. Kalra had spent 16 years at HCL and later at Symphony Teleca before joining Persistent.

After taking the helm, Kalra revamped the go-to-market strategy, worked closely with large vendors, including Microsoft and Amazon Web Services, focused on key verticals such as banking, financial services, insurance, healthcare and life sciences, and refreshed the leadership team. In five years, that team was able to deliver what had not happened in over three decades. The compound annual growth rate (CAGR) for the three years before Kalra joined was 6.4%; between FY21 and FY24 it zoomed to 28%.

At Noida-headquartered Coforge, five years prior to Sudhir Singh being appointed as CEO, the CAGR was 3.1%; after he joined in 2019, it has surged to 16% (till FY24), as Mint wrote in its Long Story on 28 November. Singh had previous stints at Infosys and Genpact before joining Coforge.

Persistent and Coforge are not the only lower-tier tech services companies being transformed from small revenue bases by leaders hired from top-tier companies. In recent years, Mphasis, Hexaware Technologies, Sonata Software and others have also hired leaders from much bigger companies to script similar shifts. Some of these transitions, such as the one at Sonata Software, are still in play and look promising.

Since Samir Dhir, an old industry hand with stints at Virtusa, Wipro, Avaya and Lucent Technologies, took over as CEO and managing director (MD) of Sonata Software in 2022, the company’s services business has grown at a CAGR of 26.3 %. In the two years before he joined, growth averaged 5.96%. Revenue has increased from $160.3 million in FY21 to $323.6 million in FY24.

Dhir, Kalra, Singh and others have helped the smaller firms punch above their weight and have rewritten their growth trajectories with mentorship, guidance, improved business processes, innovative solutions and a stronger competitive edge.

Even Tech Mahindra, a mid-tier multibillion-dollar company that saw growth stagnate, is now banking on talent from the top tier to transform its fortunes. Last December, after veteran C.P. Gurnani retired, it appointed Infosys veteran Mohit Joshi as CEO to put it on a higher growth trajectory. Around a dozen other executives have joined him from Infosys and other top companies to execute a new growth strategy.

“Talent moving from big to mid and small companies and transforming them is one of the best things to have happened to Indian IT since Y2K," said Ramkumar Ramamoorthy, partner at Catalincs, a growth advisory firm, and a former CMD of Cognizant India.

This is not to say that only leaders from the top tier can drive growth. For instance, Bengaluru-headquartered Mphasis, which had suffered a contraction in revenue, returned to the growth path after Nitin Rakesh took over as CEO and MD. Before Rakesh, who came in from mid-tier company Syntel, took the helm, Mphasis’ CAGR was at -0.8%. Its revenue had dropped from ₹6,225.4 crore in FY14 to ₹6076.4 crore in FY17. In the most recent fiscal year, it reported revenue of ₹13,278.5 crore. The company has grown at a CAGR of 14.6% since Rakesh joined in 2017.

Change is in the air

Only a handful of companies make up the top tier of the $260 billion IT services landscape. That elite group comprises TCS, Infosys, HCLTech, Wipro and Cognizant, all with revenue of more than $10 billion—TCS leads the pack with $29 billion. Outside the top tier, the tech services industry has a few mid-tier firms and a long tail of smaller companies, which have at best seen glacial growth.

Many of the companies in the last set had the same opportunity as today’s big boys but failed to capture the market. For instance, the founders of industry lobby Nasscom, including Saurab Srivastava, Harish Mehta and K.V. Ramani, had the same opportunities as the biggest companies but their tech services ventures remained in a niche. Some, like iGate, could not scale up despite some positive moves—it had acquired Patni Computers and was itself later acquired by Capgemini.

For perspective, Cognizant and HCL crossed the $1 billion mark way back in 2006 (TCS, Infosys and Wipro had crossed that landmark earlier). In the 18 years since then India has had just about a dozen or so billion-dollar-plus companies.

But change is in the air, thanks to attrition at the mid to top levels in large companies. Some of the smaller services providers have tapped top-deck talent from the likes of TCS, Infosys, Cognizant, Accenture and Capgemini, among others. And that has helped them show a marked improvement in revenue growth and margins.

When seasoned leaders from large IT services companies join smaller firms, they bring a wealth of experience, strategic vision, and industry connections that can be a game changer, say observers. These leaders leverage their deep understanding of market dynamics and operational efficiencies to help smaller companies scale rapidly, navigate complex challenges, and seize new opportunities, they add.

“Senior executives from large services providers not only bring proven capabilities in managing complex engagements and client relationships, but also infuse organizations with invaluable industry networks and ecosystem connections," said Alisha Mittal, vice president, Everest Group, a research firm and consultancy.

Moreover, these leaders have a deeper understanding of global best practices, operational efficiencies and strategic networks, enabling mid-sized firms to compete more effectively with the larger peers they learnt the ropes at. For example, NIIT’s founders built one of the largest computer learning platforms in India. But the fast growth of their services arm, NIIT Technologies (later rebranded as Coforge), happened after the founders hired Singh.

The new leaders have been able to shift focus to new growth areas. For instance, under Dhir, Sonata Software shifted its business model from proprietary platform-based delivery to modernization of engineering services. It introduced a number of strategic initiatives that paved the way for growth, including focusing on higher-spending businesses such as BFSI (which accounts for about one-third of the IT services business for the industry), retail, technologies, increasing large-deal momentum, targeting untapped markets, and strengthening leadership capabilities. Sonata Software was founded in 1986 as a software division of Indian Organic Chemicals. It was spun off as an independent entity in 1994.

Wanted: Hunter-farmers

Scaling up an organization is both an art and a science. Very few people have that exposure. Once you gain that, institutionalizing it along with a team that has seen scale becomes a lot easier," said Ramamoorthy.

To begin with, the external CEO brings with him the ‘think big’ mindset. At Coforge, Singh changed the top ranks, moved the new leadership closer to the markets, focused on niche areas and changed the rewards strategy. “The leadership brought in a more focused positioning rather than being ‘me too’ and trying to do what the large companies were doing," said Gaurav Vasu, CEO of UnearthInsight, a Bengaluru-based consultancy.

For instance, since assuming leadership in 2017, Rakesh has led Mphasis through a strategic transformation, focusing on digital innovation and client-centric solutions.

The external hire has a different approach from the founders, say observers, noting that the latter run out of network connections to land big deals. They don’t invest in partnerships with major software vendors such as AWS, Microsoft, Salesforce, ServiceNow and so on.

“Founders who have been running it for many years and have made a few hundred million dollars in personal wealth may get complacent and growth slumps. This is where an external leadership walks in with new ideas to change the game," said Vasu.

Also, an external CEO is answerable to the board and is hired for a specific purpose—to accelerate growth. The top-tier hire focuses on “farming and hunting", added Vasu, and explained, “The older team may keep farming within the existing set of customers and can extract/cross-sell only so much. The new hire expands the farming area, and hunts for new clients." While looking at getting new businesses they also invest in partnerships and acquisitions.

Dhir, for instance, continued to focus on farming Sonata’s existing verticals such as Telecom, Media, Technology (TMT) and Retail, Manufacturing, Distribution (RMD), while also investing in newer verticals such as BFSI and Healthcare and Life Sciences. The company also invested in emerging technologies such as cloud computing, Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), data analytics and cybersecurity.

All combined, it makes for differentiated growth, leading to a sudden acceleration in business.

“The combination of expertise, networks and strategic insight often serves as a catalyst for sustainable growth and innovation," said Mittal.

That combination has paid off at Mphasis, Coforge, Persistent Systems and others, but may not always work out. One of the biggest challenges in bringing senior leaders from larger companies is the “potential for cultural misalignment," said Mittal.

The operational dynamics of an $18 billion Infosys, $11 billion Wipro or a $29 billion TCS differ vastly from those of a sub-$1 billion company that has not scaled up significantly for decades. The top-tier companies get invited to big global transformation deals and their CXOs have more resources. At a smaller company, the leadership hired from a larger company will have to readjust to this reality. That’s why transformation takes time—four to six years—and the board has to be patient with the new hire.

The scale challenge

Steering a few companies that were starved for growth for 2-3 decades past the $1 billion mark might be a great internal achievement, but the challenge is in sustaining that momentum on a larger revenue base. At its Investor Day on 28 November, LTIMindtree set itself a revenue target of $10 billion by 2032, up from $4.3 billion now. The L&T-owned company, formed after merging Mindtree and L&T Infotech, is banking on its BFSI and technology verticals, building a wider Fortune 500 client base, bagging large deals, and providing AI solutions to customers.

Coforge wants to expand in BFSI and also verticals such as travel and hospitality. It reported revenue of $1.12 billion in March 2024 and plans to get to $2 billion by FY27. Going against this trend, in August 2023, Happiest Minds pushed its goal of touching $1 billion in revenue by a year to 2031. Coforge and Happiest Minds would need to log a compound annual growth rate of 21.32% and 26.21%, respectively, to achieve their goals.

Earlier this year, Tech Mahindra unveiled a new strategy for growth that aims to achieve 15% growth in operating profit and higher revenue over the next 36 months. CEO Joshi has chalked out growth plans around margin improvement, cost optimization, and cross-selling of services to existing and new clients. At the same time, he is looking to widen the $6.27 billion company’s business beyond its core domain, telecom, and drive growth in BFSI, manufacturing, life sciences and other verticals. The rejig comes in the wake of a less-than-spectacular performance by the company in FY24.

AI, a new playing field

For companies across the IT services spectrum, future growth will be driven by AI-first delivery models. As Everest’s Mittal put it, “The next wave of growth is shifting away from traditional labour arbitrage models towards AI-first delivery. While large service providers possess an advantage due to their scale, the real value in AI will come from delivering specialized industry and functional use cases."

Ramamoorthy believes small and mid-tier companies are better positioned to handle the new opportunities in this space and scale up. “They don’t have the baggage of maintaining legacy businesses as much as their larger peers do. They can refresh the old and shape the new," he said.

The billion-dollar companies will be aiming to get into the $3 billion to $5 billion club next. But the leadership that has delivered the growth so far may not be around for the next stage, with some set to retire.

“They will have to find a new set of leaders as they go along, besides increasing market share and deepening their offerings," said Vasu. “The good thing is, much like the larger players, they have this new opportunity in AI, where customers are open to new ideas as long as their partners can deliver."